Spotify tries to bulk up for negotiations with record labels

Streaming music service Spotify will launch its first television advertising campaign Monday night in the hopes of capturing more mainstream customers and building enough heft that the British-based company has more leverage when negotiating with the recording labels that own the rights to most of its music.

The advertising spots are set to first air on NBC’s The Voice and later on Late Night with Jimmy Fallon and are expected to run for a few months. The company offers both free and paid service. and a spokesman for the company says the hope is for an “introduction” for a “broader mainstream audience.”

As the Wall Street Journal reports, despite a $3 billion valuation and heavy investments from Goldman Sachs, the company is still unprofitable. Last year, it ran a net loss of $56.6 million.

“The big three” recording labels — Universal, Sony and Warner Brothers — charge royalties that heavily trim Spotify’s margins. In February, The Verge reported that Spotify was in the process of trying to renegotiate and was asking for substantial pricing breaks in its licensing agreements.

From The Verge:

About 70 percent of Spotify’s revenues pays music-licensing fees while another 20 percent covers customer acquisition, these sources said. That leaves 10 percent to pay all of the company’s other costs, including its much praised technology platform. Insiders have told The Verge that this cost structure zeroes out Spotify’s profits.

Spotify also plays in a very crowded media-streaming market with companies like Rdio, Last.fm, MOG, Pandora, Turntable, and Rhapsody. There are even rumors that Apple may soon launch a streaming music service.

Rumors also swirled on Monday that Spotify will soon launch a streaming video service to compete with Netflix, but such rumors have been around longer than the company has been in the United States.

Spotify launched in the U.S. in July 2011 and now, worldwide, claims over 6 million paid and 24 million total subscribers.